Markets cautious after EU summit
Friday 09 December 2011
An extraordinary EU summit has stirred up the member states more than it has stirred the financial markets looking for signs of single currency revival and stability.
Prime Minister David Cameron's veto of a 27-nation treaty change to toughen economic rules in the eurozone grabbed all the immediate headlines.
But behind the institutional wrangling, the deal on a eurozone-only "fiscal compact" holds the promise of a fightback in the currency propaganda war.
Markets rose after the summit declaration setting out the terms of the "compact".
The question is whether that trend will continue on Monday or whether, as so often with the recent series of eurozone-related summits, markets will decide there is nothing to smile about at all.
The summit conclusions reiterate a "reinforced architecture for Economic and Monetary Union", including the "compact" and "significantly stronger co-ordination of economic policies in areas of common interest".
A new "fiscal rule" includes:
:: A eurozone pledge to maintain "balanced budgets" by writing into national law a requirement to keep any structural deficit below 0.5% of GDP;
:: "Automatic consequences" (sanctions) for any eurozone country breaching a deficit ceiling of 3% of GDP.
:: Strict monitoring by the European Commission of draft national eurozone budget plans, with the Commission empowered to ask for changes;
:: Work to be studied at another summit next March on the further deepening of "fiscal integration", which "will imply more intrusive control of the national budgetary stance by the EU".
The declaration pledges stronger policy co-ordination and governance "without undermining the internal market" and vows that the increased financial firepower of the EU's bailout fund - "leveraged" from about 280 billion euro (£239 billion) to about 600 billion euro (£512 billion) - will be "rapidly deployed".
A European Stability Mechanism, worth a maximum of 500 billion euro (£427 billion) in loans, will be brought into force a year early in July 2012.
With eurozone member states also committed to loan 200 billion euro (£170 billion) to the International Monetary Fund, the hope is the figures will demonstrate a gradual reinforcement of eurozone defences.
German chancellor Angela Merkel said before leaving the summit that the accord was "a breakthrough to a stable union", demonstrated by the fact that only one country - the UK - was refusing to commit to the "fiscal compact".
She went on: "The measures for funding show that they (the 26 member states) have recognised how serious the situation is in Europe."
She said the deal done in Brussels demonstrated that "we have once again regained credibility".
She added: "Step by step we have achieved a new basis for trust."
But, as ever in this eurozone crisis, the markets will have the last word.
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